How is Tesla selling residential solar for less than $2 per watt?

High-profile CEO Elon Musk has delivered on his promise to slash prices for residential solar. And the company’s reduction of prices to as low as $1.75/W after the federal tax credit is applied is likely a result of the move to online sales.

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One persistent aspect of the growth of solar as a technology is that it just keeps getting cheaper. Quarter after quarter and year after year the price of installed systems keeps falling, enabling large scale solar to out-compete conventional generation and reducing the payoff times for rooftop solar under net metering.

Reductions in PV module costs have driven much of this decline because soft costs – the non-hardware portions of adding solar including installation, sales, permitting and measures to prevent overheating – have been much harder to reduce. That is not to say soft costs can’t be reduced – sometimes it just takes a new approach.

Screen shot of the Tesla cost calculator

This week, Tesla’s online sales calculator showed the company is selling residential PV systems for $2.85/W in California and Massachusetts, and $2.65 in New York, Texas and Florida – unsurprisingly the largest markets. Assuming the full 30% federal Investment Tax Credit (ITC) is claimed, the cost falls to $1.93 and $1.85/W.

In at least four U.S. states – Colorado, Pennsylvania, Washington and Utah – the price is even lower, at $2.50 and $1.75/W if the ITC is fully claimed (see the screen shot to the right).

Media outlets say this is Tesla delivering on its promise to cut residential system costs by 16%. pv magazine cannot verify that, as this is our first attempt at using the online calculator and Tesla hasn’t provided average system prices on its quarterly results calls.

However, it is a price level significantly below that offered by Tesla’s competitors, with Sunrun reporting $3.17/W in the fourth quarter of 2018, and Vivint $3.18. But Tesla isn’t just undercutting the big third-party solar companies – its prices are also well below the $2.98/W-DC Wood Mackenzie reported as the average residential solar price in the final quarter of last year, and also below the $3.05 reported by EnergySage as the average in the second half of 2018.

So how, and why, is Tesla doing this?

Strategy shift

In the first half of the decade, growth in residential solar was driven by third-party solar companies who deployed teams of often-inexperienced salespeople door to door. That approach, the financing unlocked by the third-party model and an emphasis on growth over profitability allowed SolarCity, Sunrun and Vivint Solar to expand rapidly to become the largest installers in the U.S.

However, after Telsa bought out SolarCity things changed. Headline-hogging Tesla CEO Elon Musk has never shown the interest in rapid growth in solar sales his cousins and SolarCity co-founders Lyndon and Peter Rive did. Musk moved sales off the street and into Tesla stores, as well as towards direct sales and away from leases and power purchase agreements.

Along the way, cash generation increased but quarterly sales volumes and market share fell. Deployment fell further when Tesla started closing retail stores and moving online, reducing Tesla/SolarCity from the largest residential solar company to the third or fourth-largest in the first quarter of this year.

Customer acquisition elimination

However, along the way Tesla was doing something else: getting rid of the cost of selling solar. While Tesla has never published detailed cost breakdowns, other sources, including the U.S. National Renewable Energy Laboratory (NREL), have illustrated how the cost of selling solar – termed “customer acquisition” – is a major contributor to soft costs.

In fact, the NREL’s latest cost breakdown found customer acquisition to be the second-highest cost in the stack, behind only module cost, at a price of $0.35/W for a typical system (see the gray portion of the chart below). That means customer acquisition makes up roughly 13% of total system costs.

Online sales mean far fewer salespeople and a minimal cost to acquire customers. That has likely been a factor in Tesla’s improved profitability and now enables the company to reduce costs beneath those of its competitors.

Whether or not that will permit Tesla to regain market share is another matter. That would require consumers to proactively visit its website to get cheaper solar. But in the long run, with the rise of online solar marketplaces such as EnergySage and Pick My Solar, Musk may be beating his competitors to the punch in terms of the next business model.

This article’s lead, body and embedded image were modified at 2:25 PM EST on May 2, to mention PV systems are available in some U.S. states for as little as $2.50/W and $1.75 after the ITC is applied, lower than the $2.65 and $1.85 figures previously used.

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Christian Roselund

Christian Roselund serves as US editor at pv magazine, and joined in 2014. Prior to this he covered global solar policy, markets and technology for Solar Server, and has written about renewable energy for CleanTechnica, German Energy Transition, Truthout, The Guardian (UK), and IEEE Spectrum.

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9 comments

While “selling” residential solar systems online sounds like a cost saving, at some point someone has to go visit the site and make a real cost evaluation. All homes are not built the same. That’s where the cost is. You can’t give a customer an actual installed cost until you measure up and evaluate all the conduit runs, roof type, attachment requirements, trees in the way, panel locations, permitting costs, and material quantities. I suspect this sales approach is bait and switch, the end cost to the customer will be far more than the online quote.

While you are correct about the cost of site visitation, you may have missed that Tesla is putting that work on the homeowner. They are going to use smartphones to somehow direct the consumer to take pictures and send them in for engineering evaluation and design. They are also reimagining how to design the systems by only offering them in 4 kW increments to further reduce the engineering costs. It appears that info was not included in this article.

It is incredible that in Australia the total cost to install US made PV panels and inverter for a 5kw system is less than 1/3rd the cost of cheapest US State. Fully installed with a 20 to 25yr warranty will cost USD 2550 for a one level house. A 6.5kw system cost USD 3,100. All measurements are done using satellite photos of your roof (2 software packages compete for the business from the major installation companies). There are no permitting fees (for a change none of our 3 levels of Govt have their snouts in the trough). There are virtually no door-to-door sales, mostly radio adverts, fliers in the mail or occasional TV adverts. A few local extra requirements such as cut-off switches by the inverter as well as each rack of panels on the roof. Supposedly to decrease risks to firemen in case of fire although senior fire officials have confirmed that with a residential fire THEY DO NOT GO ON THE ROOF DUE TO EXTREME RISKS OF ROOF COLLAPSE. This requirement adds about $175 to installation cost. Panel cost is roughly 1/3rd of total cost in Australia (at most).

I wish you had put a side by side comparison of residential and grid scale solar system. It seems like grid scale is the way to go. There is so much in the way of permitting, marketing and overhead cost associated with residential systems that is surely much lower with a grid scale system.

There are side-by-side comparisons available, but that was outside the scope of this article.

You are correct that there are additional costs with permitting, marketing and overhead; more than anything the advantage of grid-scale are various economies of scale.

However, grid-scale PV comes with its own additional costs and inefficiencies, that are usually not expressed as part of the per-watt price. This include the need for power lines to move the electricity to the point of use and the lost power when transported; in the United States such lines are typically overhead and are the cause of the large majority of power outages.

As such distributed PV has additional value in terms of deferred transmission investments, fewer to no line losses, greater resiliency benefits and others that must be counted if you are to do a full comparison of the two. You have to not only count costs, but also value.

How is Tesla selling residential solar for less than $2 per watt? Still don’t understand that you guys think this is so spectacular… In our country (the Netherlands), prices are usually around € 1,- /Wp (installed). So thats about $ 1.12 / Wp This is of course not the Tesla brand, but several other reknown suppliers. Are you prices so high because of the “US-saving” import tariffs? 😉

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